Are Conforming Loan Limits Higher for Multi-Family Properties?

Any discussion regarding “conforming loan limits” should include an explanation as to what they are. Conforming loan limits are the guidelines that were established to determine the reasonable and allowable size of a loan. Those loan limits apply directly to the average prices for residential properties within a given geographic area. Currently, the majority of U.S. counties have a conforming loan limit of $417,000 for a one-unit property. In locations where real estate prices tend to be quite a bit higher than the U.S. average, such as in larger metros and coastal areas, loan limits can reach up to $721,050.

Along with the cost of real estate, conforming loans include evaluations to decide if a borrower is a good risk. Other considerations are the prospective borrower’s loan-to-value ratio or LTV, debt-to-income ratio, credit score and history, and other documentation requirements such as employment verification and tax information. As the entity that oversees Freddie Mac and Fannie Mae, the Federal Housing Finance Agency, or FHFA is the one that sets the conforming loan limits.

In the case of multi-family properties, the conforming loan limits are generally higher. It stands to reason that such properties will be more expensive due to their size alone. The limit tends to increase based on the number of units in the building. Of course, like with any financing program, a number of factors are taken into account, including the prospective borrower’s LTV, outstanding debt, employment history and credit score.

Other Resources You Might Find Helpful

Deciding Whether or Not to Pay Points on a Mortgage

When a homebuyer pays for “points”, he or she is paying a portion of the loan’s interest up front. Points are paid for in a lump sum that will reduce the interest rate on a fixed mortgage. Each mortgage loan point costs the buyer 1 percent of the total mortgage amount. So, for a home with a price tag of $100,000, one mortgage point would cost $1000. The interest rate on a 30-year fixed mortgage is generally reduced by 0.125 percent for each discount point. The more points the buyer purchases, the lower their final mortgage rate will be. Most lenders offer up to three points.

In choosing whether or not buying mortgage points in beneficial, it is necessary to ask yourself a few questions:

Can you afford to pay for the points up front? Would it be better to save any extra cash for other expenses that a home purchase will undoubtedly necessitate?

How long do you plan to keep the home and this mortgage? Those in it for the long term could stand to gain more from lowering their interest rate.

calculationsOne helpful tool to use when making this choice is a mortgage calculator. It will help you determine the amount of the monthly house payment at the interest rate you will lock into without buying points. Then, calculate the price with points. To see how much buying the points would save you, subtract the lower payment from the higher payment. Finally, divide the cost of the points by the monthly about that could be saved. That answer is also the number of months that you would need to keep the loan in order to reach the “break even” level on paying for points.

Here is an example:

  • For a 30-year fixed rate loan of $100,000 with a 6 percent interest rate, the monthly payment for the principal and interest would be $599.55.
  • Buying 3 mortgage points for a total cost of $3000, would trim the interest rate down to 5.25 percent. That would lower the monthly payment to $552.20 and save $47.35 a month.
  • The cost of the points ($3,000) divided by the monthly savings ($47.35) determines the length of the loan. So for this example: 3,000 divided by 47.35=63

So the break-even point would be 63 months or just over 5 years. If you plan to remain in the house for at least that long, then purchasing points might make sense.

Other things to consider when deciding if buying mortgage points is a smart move are:

  • In some cases, the seller agrees to pay for the discount points. Discuss this with your lender to find out if the guidelines for your loan allow this. Typically, the seller would negotiate a higher price in return, however, you would have a little extra cash at closing.
  • Another matter to take into account are that points for residential real estate may be tax deductible. Talk to a tax professional to see how this could affect your situation.

Is An Adjustable Rate Mortgage Right for You?

As prospective homebuyers weigh their financial pros and cons, the subject of adjustable rate mortgages will likely come up. Known as ARMs, they have interest rates that vary, unlike traditional fixed-rate mortgages.

With an ARM, the interest rate begins with a fixed rate for a set time period. It is usually lower than the interest rate for a typical fixed-rate loan, which is a major enticement. These adjustable rate mortgages are referred to by their fixed periods. For example, there are 3, 5, 7, and 10-year ARMs. When the fixed period is up, the interest rate increases.

Even though the rate changes after the introductory period, many borrowers find these loans a good choice because of the lower starting rates. ARMs also come with rate caps that protect the borrower just in case interest rates rise dramatically.

In deciding if an ARM is right for you, there are definite considerations:

  • If your employment situation is less that secure, an ARM could be risky. Could you handle an increase to your monthly mortgage payment should you experience a pay cut or lose your job?
  • An ARM may be ideal for couples or young families just starting out. They can take advantage of a lower interest rate in the short term, reap the rewards of home ownership, and have moved on to the next home long before the rate adjusts. In addition, with the smaller loan amounts typical of “starter homes” a slightly higher payment down the road might still be affordable. Of course it is crucial to be prepared for that scenario.
  • For investors, purchasing a “fixer-upper” property with an ARM could make a lot of sense. They can own the home during the renovation with fewer out of pocket expenses, and potentially sell it before the rates change.
  • Individuals with careers that keep them on a relocation cycle also may favor ARMs. It is a more affordable way to own a home, possibly build a little equity, and still save money during the fixed rate period. If moving for a new position every two to three years the home would most likely be sold before it adjusts if a five year or seven year ARM was selected.

Young couple in their backyard.If selling the property before the end of the introductory period is over is part of your plan be sure to think through what would happen should the home lose value rather than appreciate? Could you afford to sell at a loss if needed, either because you have considerable equity in the home or because you have other assets available?

To decide if securing an ARM is a logical approach to your next home purchase, it is best to review your situation with a qualified experienced lender. That way, you will be able to make an informed decision!

Adjustable Rate Mortgage Lenders

Here are a few National mortgage banks and lenders to consider in your search for adjustable rate financing:

American Bank
National Lending Center
150 E. Campus View Blvd
Suite 200
Columbus, OH 43235
(866) 804-4645

LenderFi
27240 Turnberry Lane
Ste 220
Valencia, California 91355
(888) 342-0000

Roundpoint Mortgage Company
5032 Parkway Plaza Blvd
Charlotte, NC 28217
(866) 559-9846

Are There Downsides to Reverse Mortgages?

Couple in front of their home. Exploring some of the potential downsides to reverse mortgages.

Reverse mortgages can be an awesome financial tool for many homeowners. Yet, there are some potential downsides.

A reverse mortgage is far from a one size fits all solution for every senior homeowner. While it is a wonderful tool that can be used by many to provide lifelong security and greatly extend their years of independence, it is not appropriate in every scenario. Listed here are some of the cons or potential negatives of reverse mortgages. These items can be reviewed during the required session with a HUD approved counselor to ensure they are understood and accounted for in the financial planning phase of the reverse mortgage process.

Heirs may not be able to repay the mortgage without selling the home.

An aging parent may hope to take out a reverse mortgage but still have the family home remain in their children’s possession after they pass away or can no longer live in the home. In some cases this will be possible, but in others the heirs may need to sell the property in order to repay the mortgage.

There is no guarantee that the senior can stay in the home for the rest of his or her life.

The goal of a reverse mortgage is to allow aging homeowners to tap into the equity in the property and use those funds for other purposes, while still remaining in the home. This is a great alternative for many over selling the home in order to access that equity. Still, there are scenarios where it might not be possible for the homeowner to remain in the property. Some of these include:

  • Due to illness, injury, or other factors the homeowner can no longer safely live independently and must move in with a family member or to a nursing home or assisted living facility.
  • A line of credit (one of the payment options) is selected, and the homeowner exhausts these funds and can no longer afford to remain in the home.
  • Term payments (one of the payment options) are selected, and at the end of the term (fixed period of months over which equal monthly payments are received) the homeowner can no longer afford to live in the home.
  • Changes in expenses or other income result in the homeowner no longer being able to afford to stay in the home.
    [Read more…]

Ways To Save Money On Your Mortgage

Pile of coins

See if you can save some coin on your next home loan!

For many home owners, mortgage payments are their largest monthly expense. Fortunately, there are ways to decrease your monthly payment and pay off your loan faster. Keep in mind, these are merely suggestions and may not work for every homeowner. Talk to your mortgage consultant or financial adviser before committing to any of these practices.

For illustrative purposes, let’s use this imaginary 30 year fixed rate mortgage as an example:

Mortgage amount: $200,000
Term: 30 years
Rate: Fixed, 5%
Estimated monthly P & I payment: $1,073.64

Make one extra payment a year

If you are able, make one additional, full mortgage payment a year. Be sure this extra payment is going toward your principal  balance, not your interest. Depending on your loan terms, you may need to request that the money be put toward principal. [Read more…]

PITI: The 4 Components of a Mortgage Payment

North Carolina Beach Houses

Learn about what your mortgage professional is talking about when he or she mentions PITI

As you may know, when you make a mortgage payment, you aren’t just paying one big chunk toward one balance. In a typical mortgage arrangement, your payment will be divided into four parts that will go toward four different debts. Principal, Interest, Taxes and Insurance are the four main components of a mortgage payment. Whenever you make a monthly payment, your money is divided among these four balances.

Here’s a simple look at how your monthly payment is divided among the four components.

  • Principal: The original amount of the loan. If you buy a house for $150,000 and you put $15,000 down, then the principal of your loan would be $135,000. Very little of your early payments will go toward paying off the principal.
  • Interest: The total amount of interest that will be applied to the principal. Using the same example above, say you take out a loan for $135,000 at a 4 percent interest rate. Four percent of $135,000 comes to $54,00, which will be added to your overall mortgage balance. Most of your early payments will go toward interest.
  • Taxes: Your obligatory payments for city, county or property taxes. Many homeowners pay their property tax obligations as part of their monthly mortgage payments and their mortgage servicer puts the amounts into an escrow account until the bills are due. This is simpler for home owners who pay the same amount each month rather than having to come up with enough money to cover a large tax bill once a year. Mortgage lenders also prefer it because they can be certain the money is there to pay the taxes due. If the homeowner failed to pay his or her taxes a lien could be put on the home jeopardizing the mortgage lender’s interest.
  • Insurance: Payment for homeowner’s insurance to cover damage to your home or property. Most insurance policies are not all-inclusive, so be sure you understand exactly what is covered in your policy. Homeowners insurance (and any other applicable policies such as flood insurance) is often paid for as part of the payment and put into an escrow account just like the property tax payment. If you purchased a home with less than 20% down, you may be required to pay private mortgage insurance (PMI). This protects the lender if you should default on your loan.
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